This Mary MacGregor ballad released in 1976 notes how a woman is torn between two men she loves and it is “breakin’ all the rules.” This is the situation Federal Reserve Chairman Jerome Powell and the FOMC finds itself: The love of its dual mandate and its torrid affair with the beloved Phillips Curve. Now it appears that the FED leadership is abandoning its affair with Phillips Curve while it grows more attached to its other love, Mario Draghi and the European Central Bank.
Posts Tagged ‘dual mandate’
Notes From Underground: Back from Hiatus
July 17, 2019I am posting a podcast recorded last week with David Rosenberg and Peter Boockvar (and moderated by Richard Bonugli) that is still really relevant. On Tuesday, Federal Reserve Chairman Jerome Powell delivered a speech in France at a gathering honoring the 75th anniversary of the since the Bretton Woods agreement. The speech epitomized the Fed’s third mandate as espoused by Vice Chairman Richard Clarida over the past five months.
Notes From Underground: Time To Tidy Up a Few Issues
February 20, 2019While the markets are busy digesting the January FOMC minutes it is a splendid opportunity to muse on recent events.
Notes From Underground: Trump Moves Markets Without Moving His Fingers
August 21, 2018The noise just keep on coming and each are disrupting the markets in its own way and the president. Monday’s headlines from the financial press had large impacts on GOLD, COPPER, EQUITIES, and, of course, CURRENCY markets. Let’s look at the substance of the comments.
Notes From Underground: Fed Creates Jobs by Printing `Data Dependent’ T-Shirts
May 11, 2015Today, CNBC‘s Steve Liesman interviewed San Fran Fed President John Williams. In a swipe at Fed gallows humor, President Williams presented Liesman with a T-Shirt that said the Fed was DATA DEPENDENT. The humor part was Williams’s effort to cut-off Steve Liesman’s well choreographed question which amounts to: “Come on, John, share your inside view about the possibility of a RATE RISE at the next FOMC meeting (just between us, John).” So as to make sure that Liesman understands the consistent answer: It is data dependent. If the FED wants to create some jobs it can send everyone with a bank account a free “Data Dependent” shirt, compliments of their regional Federal Reserve. All sarcasm aside, President Williams’s view puts added importance now to the inflation data on Friday and of course the retail sales input on Wednesday. The consensus on the CORE RETAIL SALES is 0.3% increase so a strong number would be above 0.6%. If the theory of data dependence holds then it should be the SHORT END of the curve that gets sold and here is my reasoning: The 2/10 and 5/30 parts of the yield curve have steepened dramatically during the last two months as the market accepts the fact that the recent bout of weak economic data has pushed the FED further away from raising rates.
Notes From Underground: Fed Loses Its Patience While I Regain My Voice
March 17, 2015Never has so much money been riding on ONE WORD from a monetary authority. The issue isn’t the idea of FED PATIENCE in regards to raising rates for if the FED increases the effective rate to 37 basis points from 12 basis points IT IS MEANINGLESS. The issue for the FED is the huge pile of bank reserves sitting at the central bank to the tune of $2.7 TRILLION (and let’s not forget the FED‘s $4.5 TRILLION balance sheet). If the economy begins to heat up and banks begin to circulate those RESERVES, the FED will have a velocity of money problem as the ECONOMY MAY BE AT SOME LEVEL OF FULL EMPLOYMENT. It’s not an interest rate problem for the FED but a RESERVE PROBLEM.
Notes From Underground: The Germans Were the Target of IMF, G-20 Animosity
October 13, 2014Germany was the issue at the IMF and G-20 meetings as all nations suffering economic headwinds delivered harsh criticism of Angela Merkel, Wolfgang Schaueble and, of course, Bundesbank President Jens Weidmann. It was Germany’s continued emphasis on budget restructuring and fiscal soundness that was holding back Europe and resulting in global economic challenges. France can’t grow because the Germans insists on the French authorities bringing their budget down to the prescribed 3 percent of the Maastricht Treaty. The peripheral nations are saddled with private and public sector debt that is not serviceable during times of economic stagnation.
Notes From Underground: Some Things to Ponder For the Second Quarter
March 31, 2014As I was reading Zbigniew Brzezinski’s book, The Grand Chessboard (1997), this insight into the Russian desire to resurrect its political stature struck me for its prescience about the significance of present developments in the Eurasian heartland. Brzezinski writes, “However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as its access to the Black sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia. Ukraine’s loss of independence would have immediate consequences for Central Europe, transforming Poland into the geopolitical pivot on the eastern frontier of a united Europe.”
It is important to understand that the moves by Vladimir Putin have deeper meaning and importance the superficial analysis offered up on the network and financial news channels. This situation is going to be with the markets for a long while and its possible impact on the global financial scene should not be undervalued by the daily movements in the world’s equity markets. Putin seems to be timing his adventure on the basis of a U.S. president who has little desire to entangle itself in any foreign adventures and a Europe so is militarily weak and financially fragile. It seems that Putin has picked a propitious time to test the waters of global fortitude against Russian designs for a resurrection of its influence in the mapping out the future of the Eurasian land mass. Oh, by the way, the Russian rouble closed much stronger for the month after making all-time lows at 36.85 roubles to the dollar on March 3. The rouble ended the day at 35.03 to the dollar. Just putting perspective to overcome much of the noise.
Notes From Underground: Bernanke and Yellen Are in Lockstep With Policy
March 4, 2013Friday night Chairman Bernanke delivered a speech on long-term interest rates at the Annual Monetary/Macroeconomics Conference sponsored by the San Francisco Federal Reserve. The basis of his remarks was that the Fed would continue to maintain its robust monetary accommodation because any early extraction may result in the economy slowing and thus the Fed would have to move to extend the period of aggressive Fed action. It is always important to remember that Ben Bernanke is the main ’37er in the realm of preventing an economic relapse to the deflationary impact of deleveraging. When I say that Chairman Bernanke is a ’37, it refers to the pledge the chairman made to Professor Milton Friedman at the esteemed economist’s 90th birthday party. Bernanke said the Fed made a huge mistake by tightening rates and reserve requirements in 1937 while the U.S. Treasury was instituting an austerity budget at the behest of Secretary Andrew Mellon. It has been Bernanke’s belief that the Fed’s actions coupled with a badly flawed fiscal policy sent the U.S. back into a very severe recession.
Notes From Underground: WAS BERNANKE HAWKING A HAWKISH OUTLOOK???
June 22, 2011I feel like I’m the odd analyst out in that Bernanke failed to impress upon me that he is a DOVE in HAWKS’ feathers. Reading the FOMC statement over and over leaves me wondering just what made the statement so strong an anti-inflation stance. The FOMC release reiterated that the FED is relying on closing the output gaps, “including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” This is not the musings of an inflation HAWK.